Entergy 2002 Annual Report Download

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ENTERGY 2002 ANNUAL REPORT

Table of contents

  • Page 1
    E N T E R G Y 2 0 0 2 A N N U A L R E P O R T

  • Page 2
    ... nuclear generator in the United States. Entergy delivers electricity to 2.6 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. Through Entergy-Koch, LP, it is a leading provider of wholesale energy marketing and trading services, as well as an operator of natural gas pipeline...

  • Page 3
    ... but flexible strategy that provides a clear guide in a challenging market. Standing Out. Entergy is standing out in our industry with exceptional performance. We are delivering on our commitments to investors, customers, employees - everyone who has a stake in our company - in good times and bad.

  • Page 4
    ...of our businesses: our utility companies, our nuclear generation business, and the energy trading and gas pipeline businesses at Entergy-Koch, LP. The performance of each business is detailed in the following report. Still, one achievement deserves special recognition: Entergy employees' outstanding...

  • Page 5
    ... unique point of view, pricing methodology, and physical optimization skills of Entergy-Koch. One of the necessary conditions to grow this business profitably is the maintenance of Entergy-Koch's "A" credit rating. Building Entergy-Koch's balance sheet with sound assets, such as regulated pipeline...

  • Page 6
    ... separate bids totaling almost $5 billion. In share in our power development business and closed the North American development operations of Entergy Wholesale Operations. We took a charge of $141 million to cancel 15 turbines, out of 36 ordered in 1999, that were not yet assigned to projects under...

  • Page 7
    ... almost all remaining rate issues at Entergy Gulf States. In the nuclear business, we have opportunities to grow earnings through efficiency improvements and power uprates - that is, projects to increase the generating capacity of our plants. Average costs at the plants we've acquired are about $10...

  • Page 8
    ...": improving customer service, safety, and reliability; repairing the balance sheet and building strong credit; and maintaining consistent growth in earnings. In fact, who would have imagined back in 1998 where the company would be today in terms of stock price, credit ratings, earnings per share...

  • Page 9
    ... industry - the best of the best - who operate safe, secure, low-cost plants, and we will be demonstrating new nuclear technologies that produce far greater value. Entergy's utilities will be recognized for industry-leading customer satisfaction, and for a comprehensive approach to meeting the...

  • Page 10
    ... of nuclear generating plants and creation of the Entergy-Koch joint venture - generated over $350 million in net income. The team at our Northeast nuclear fleet - five units that we've acquired in the past four years - has delivered earnings by improving capacity factors and reducing costs at...

  • Page 11
    ... pipeline business at Entergy-Koch, and power purchase agreements with regulated utilities in our nuclear business. Entergy has limited exposure to trading losses. We've provided no parent guarantee to EntergyKoch. And Entergy-Koch is financially sound, with the highest credit rating of any energy...

  • Page 12
    ..., Entergy Louisiana Operations In late September, Tropical Storm Isidore left 93,000 Entergy customers without power. Crews restored power to most customers by the next morning. The following week, Hurricane Lili knocked out power to 243,000 Entergy customers. Following the storm, customer service...

  • Page 13
    ... pay to reserve capacity in others' plants, and our customers won't get hit with astronomical power prices if there is a short-term shortage. RECOGNITION Service to Customers For the fourth year in a row, national energy customers selected Entergy as one of the electric utility companies offering...

  • Page 14
    ... is not a "cost of doing business" but an integral part of who we are as a company. STANDING OUT - ENTERGY LOW-INCOME CHAMPIONS Patricia Rucker, Entergy Mississippi Customer Ser vice Entergy's Low-Income Champions reach out to low-income advocacy organizations and find community partners to help...

  • Page 15
    ... to lower costs for fuel and purchased power, thanks largely to record output from Arkansas Nuclear One. In New Orleans, Entergy has requested a rate increase totaling $44 million. We've asked the City Council to authorize a higher ROE, to ensure Total number of members 1,507 Grants given 2000...

  • Page 16
    ..., achieved a remarkable 50-year safety record without a lost-time accident. The Equipment Repair Test and Disposal South Meter Shop tests and repairs all reusable electric meters for Entergy Louisiana, Entergy New Orleans, and Entergy Gulf States. The staff handles about 60,000 meters a year.

  • Page 17
    ... rating. Entergy sites include the first electric generating plants (Little Gypsy and Waterford 1 & 2), the first nuclear plant (Arkansas Nuclear One), and the first nuclear fleet (Entergy Nuclear South) to earn VPP Star status. Entergy is successfully meeting the challenges of safety and security...

  • Page 18
    I n 2001, Entergy was the first U.S. electric company to publicly announce a target for controlling greenhouse gas emissions to help address climate change. In 2002, we took major initiatives to make good on our commitment. And we're a leader in producing electricity from clean generation sources....

  • Page 19
    ...million a year. ENTERGY-KOCH: DISCIPLINE AND BALANCE RECOGNITION E ntergy-Koch, LP, our energy trading and marketing and gas pipeline business, has Physical optimization, which manages customers' power, gas storage, and transportation assets to reduce their costs and risk. Financial optimization...

  • Page 20
    ... by the rules, and the rules encourage innovation. Entergy is a leader in advancing new ideas to create a robust transmission system and efficient markets for electric generation. With integrity and innovation, Entergy-Koch is promoting a strong market for energy trading and is prospering in that...

  • Page 21
    ...Entergy-Koch's ratings reflects a conservative balance sheet, a disciplined trading approach, and superior risk management practices. Strong credit ratings are especially important to potential customers and counterparties in the current market. To maintain its strong credit as the trading operation...

  • Page 22
    ...growth will come from businesses we already operate. We can expand our ability to generate earnings in our current businesses through such things as additions to our utility rate base, uprates at our nuclear power plants, and expansion of gas storage facilities at Entergy-Koch. Such intrinsic growth...

  • Page 23
    ...Nuclear plants - and the prices and availability of power Entergy must purchase for its utility customers Entergy's ability to develop and execute on a point of view regarding prices of electricity, natural gas, and other energy-related commodities Entergy-Koch's profitability in trading electricity...

  • Page 24
    ...: At year-end Weighted average - basic Weighted average - diluted Total assets Long-term obligations(b) Preferred and preference stock Long-term debt (excluding currently maturing debt) Return on average common equity Cash from operations DOMESTIC UTILITY ELECTRIC REVENUES: $ 8,305,035 $ 623...

  • Page 25
    ... on selling electric power produced by those plants to wholesale customers. E N E R G Y C O M M O D I T Y S E R V I C E S is focused almost exclusively on providing energy commodity trading and gas transportation and storage services through Entergy-Koch, LP. Energy Commodity Services also includes...

  • Page 26
    ... nuclear insurance refunds of $6.7 million. Fuel recovery mechanisms at the domestic utility companies (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively) generally provide for the deferral of fuel and purchased power costs above...

  • Page 27
    ... addressing System Energy's rate proceeding; interest recognized in 2001 at Entergy Mississippi and Entergy New Orleans on the deferred System Energy costs that were not being recovered through rates; and lower interest earned on declining deferred fuel balances. The decrease in interest charges...

  • Page 28
    ...in earnings for the year. Following are key performance measures for EntergyKoch's operations for 2002 and 2001: 2002 Entergy-Koch Trading Gas volatility Electricity volatility Gas marketed (BCF/D)(1) Electricity marketed (GWh)(1) Gain/loss days Gulf South Pipeline Throughput (BCF/D) Production cost...

  • Page 29
    ... in earnings for Energy Commodity Services in 2001 was primarily due to: the gain on the sale of the Saltend plant discussed below; the favorable results from Entergy-Koch discussed below; the $33.5 million ($23.5 million net of tax) cumulative effect of an accounting change marking to market the...

  • Page 30
    ... Entergy Corporation Entergy Arkansas Entergy Louisiana Entergy Mississippi Expiration Date May 2003 May 2003 May 2003 May 2003 Amount of Facility $1,450 $ 63 $ 15 $ 25 Amount Drawn as of Dec. 31, 2002 $535 - - - Long-term Debt Maturities U.S. Utility Non-Utility Nuclear Energy Commodity Services...

  • Page 31
    ... stock for a total purchase price of $118.5 million in 2002. System Energy Letters of Credit System Energy had three-year letters of credit in place that were scheduled to expire in March 2003 securing certain of its obligations related to the sales/leaseback of a portion of Grand Gulf 1. System...

  • Page 32
    ... under new or existing facilities; and sales of assets. The majority of Entergy's internally generated funds come from the domestic utility companies and System Energy. Circumstances such as weather patterns, price fluctuations, and unanticipated expenses, including unscheduled plant outages, could...

  • Page 33
    ... Nuclear business provided $282 million in operating cash flow, an increase of $18 million compared to 2001. Investing Activities 2002 Compared to 2001 In 2001 Entergy Louisiana changed its method of accounting for tax purposes related to the contract to purchase power from the Vidalia project...

  • Page 34
    ... construction due to completion of the Saltend and Damhead Creek plants. The recovery of deferred fuel costs incurred at certain of the domestic utility companies increased in 2001. Entergy Arkansas, the Texas portion of Entergy Gulf States, and Entergy Mississippi (for 2000 only) have treated these...

  • Page 35
    ... a portion of Entergy Gulf States' operations. Governmental agencies, including the APSC, the Council of the City of New Orleans, Louisiana (City Council), the LPSC, the Mississippi Public Service Commission (MPSC), the Public Utility Commission of Texas (PUCT), and FERC, are primarily responsible...

  • Page 36
    ... output of power from Indian Point 3 and FitzPatrick, the Non-Utility Nuclear business The earnings of Entergy's Energy Commodity Services segment are exposed to commodity price market risks primarily through Entergy's 50%-owned, unconsolidated investment in EntergyKoch. Entergy-Koch Trading uses...

  • Page 37
    ... in equity prices and interest rates. The Nuclear Regulatory Commission (NRC) requires Entergy to maintain trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf 1, Pilgrim, Indian Point 1 and 2, and Vermont Yankee (NYPA currently retains the decommissioning...

  • Page 38
    ..., changes to labor relations, management and staffing, structure of operations, environmental compliance responsibility, and other aspects of the utility business. Transmission Only in the Texas portion of Entergy Gulf States' service territory has there been significant retail open access activity...

  • Page 39
    ... adequacy of plans to protect the health and safety of the public. If the NRC determines that there is not such assurance, it has the authority to order the Indian Point plants to shut down. Entergy is interacting with New York state and county officials, FEMA, NRC and other federal agencies to make...

  • Page 40
    ... discussions of these implications by business unit follow. U.S. Utility Entergy collects substantially all of the projected costs of decommissioning the nuclear facilities in its U.S. Utility business unit through rates charged to customers, except for portions of River Bend, which is discussed in...

  • Page 41
    ... Asset Plan in the Louisiana jurisdiction of Entergy Gulf States, a portion of River Bend (approximately 16% of its total capacity) is excluded from rate base, and no amounts have been or are being collected for decommissioning for this portion of the plant. In the U.S. Utility business unit...

  • Page 42
    ...; and power sales agreements that do not involve delivery of power from Entergy's power plants. Conversely, commodity contracts that are not considered derivatives or energy trading contracts, generally because they involve physical delivery of a commodity to the purchaser, are not marked to market...

  • Page 43
    ... Services business. P ENSION AND O THER P OSTRETIREMENT B ENEFITS Entergy sponsors defined benefit pension plans which cover substantially all employees. Additionally, Entergy provides postretirement health care and life insurance benefits for substantially all employees who reach retirement...

  • Page 44
    ... of factors, including the increased health care cost trend rate, Entergy expects 2003 costs to approximate $108 million. O THER C ONTINGENCIES Entergy, as a company with multi-state domestic utility operations, and which also had investments in international projects, is subject to a number of...

  • Page 45
    ... written policies and procedures, an employee Code of Entegrity, and an organizational structure that provides for appropriate division of responsibility and the training of personnel. This system is also tested by a comprehensive internal audit program. The Audit Committee of the Board of Directors...

  • Page 46
    ... businesses Total OPERATING EXPENSES: $6,646,414 125,353 1,533,268 8,305,035 $7,244,827 185,902 2,190,170 9,620,899 $7,219,686 165,872 2,636,571 10,022,129 Operating and maintenance: Fuel, fuel-related expenses, and gas purchased for resale Purchased power Nuclear refueling outage expenses...

  • Page 47
    ...Balance at beginning of period: Accumulated derivative instrument fair value changes Other accumulated comprehensive (loss) items Total Cumulative effect to January 1, 2002 of accounting change...Add: Common stock issuances related to stock plans Paid-in Capital-End of period See Notes to...

  • Page 48
    ... trust funds Non-utility property-at cost (less accumulated depreciation) Other Total P R O P E R T Y, P L A N T A N D E Q U I P M E N T : Electric Property under capital lease Natural gas Construction work in progress Nuclear fuel under capital lease Nuclear fuel Total property, plant and equipment...

  • Page 49
    ... SHAREHOLDERS' EQUITY 2002 2001 CURRENT LIABILITIES: Currently maturing long-term debt Notes payable Accounts payable Customer deposits Taxes accrued Accumulated deferred income taxes Nuclear refueling outage costs Interest accrued Obligations under capital leases Other Total $ 1,191,320 351 855...

  • Page 50
    ... Allowance for equity funds used during construction Nuclear fuel purchases Proceeds from sale/leaseback of nuclear fuel Proceeds from sale of businesses Investment in other non-utility properties Decrease (increase) in other investments Changes in other temporary investments -net Decommissioning...

  • Page 51
    ...purchaser Decommissioning trust funds acquired in nuclear power plant acquisitions Change in unrealized depreciation of decommissioning trust assets Long-term debt refunded...purpose of refunding prior long-term debt Acquisition of Indian Point 3 and FitzPatrick: Fair value of assets acquired Initial ...

  • Page 52
    ... around Baton Rouge, Louisiana and Entergy New Orleans distributes gas to retail customers in the City of New Orleans. Entergy's Non-Utility Nuclear and Energy Commodity Services segments derive almost all of their revenue from sales of electric power generated by plants owned by them. System Energy...

  • Page 53
    ... on the balance sheet. The decommissioning liabilities related to Grand Gulf 1, Pilgrim, Indian Point 2, Vermont Yankee, and the 30% of River Bend previously owned by Cajun Electric Power Cooperative, Inc. (Cajun) are reflected in the applicable balance sheets in "Deferred Credits and Other...

  • Page 54
    ... with the regulatory treatment of the River Bend plant, River Bend's costs are accrued in advance and included in the cost of service used to establish retail rates. Entergy Gulf States relieves the accrual when it incurs costs during the next River Bend outage. A LLOWANCE FOR F UNDS U SED D URING...

  • Page 55
    ... utility companies. Only Texas has a currently enacted retail open access law, but Entergy believes that significant issues remain to be addressed by regulators, and the enacted law does not provide sufficient detail to reasonably determine the impact on Entergy Gulf States' regulated operations...

  • Page 56
    ... River Bend, Entergy Gulf States has recorded an offsetting amount of unrealized gains/(losses) in other deferred credits. System Energy's offsetting amount of unrealized gains/(losses) on investment securities is in other regulatory liabilities. Decommissioning trust funds for Pilgrim, Indian Point...

  • Page 57
    ...the status of retail open access in the domestic utility companies' retail service territories. % of Entergy's 2002 Revenues Derived from Retail Electric Utility Status of Retail Jurisdiction Open Access Operations in the Jurisdiction Arkansas Texas Louisiana Mississippi New Orleans Retail open...

  • Page 58
    ... benefits Pension costs Depreciation re-direct (Note 1) River Bend AFUDC (Note 1) Spindletop gas storage lease Low-level radwaste 1994 FERC settlement (Note 2) Sale-leaseback deferral (Note 10) Other Total Deferred Fuel Costs In the Texas jurisdiction, Entergy Gulf States' rate schedules...

  • Page 59
    ... Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans recover electric fuel costs on a two-month lag. The Louisiana jurisdiction of Entergy Gulf States' and Entergy New Orleans' gas rate schedules include estimates for the billing month adjusted by a surcharge or credit for deferred fuel...

  • Page 60
    ... of retail open access in Entergy Gulf States' Texas service territory. RECOVERY O F R I V E R B E N D C O S T S - In March 1998, the PUCT disallowed recovery of $1.4 billion of company-wide abeyed River Bend plant costs, which have been held in abeyance since 1988. Entergy Gulf States appealed the...

  • Page 61
    ..., asserts, among other things, that Entergy New Orleans and other defendants have engaged in fuel procurement and power purchasing practices and included costs in Entergy New Orleans' fuel adjustment that could have resulted in New Orleans customers being overcharged by more than $100 million over...

  • Page 62
    ... refunding a total of approximately $62 million, plus interest, to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans through June 2004. System Energy also reclassified from utility plant to other deferred debits approximately $81 million of other Grand Gulf 1 costs...

  • Page 63
    ...Power purchase agreements Nuclear decommissioning Other Total Deferred Tax Assets Accumulated deferred investment tax credit Capital loss carryforwards Foreign tax credits Sale and leaseback Unbilled/deferred revenues Pension-related items Reserve for regulatory adjustments Customer deposits Nuclear...

  • Page 64
    ... 2002 Entergy Corporation U.S. Utility Preferred Stock: Without sinking fund: Entergy Arkansas, 4.32% - 7.88% Series Entergy Gulf States, 4.20% - 7.56% Series Entergy Louisiana, 4.16% - 8.00% Series Entergy Mississippi, 4.36% - 8.36% Series Entergy New Orleans, 4.36% - 5.56% Series Total without...

  • Page 65
    ... Awards Plan, and certain other stock benefit plans. The Directors' Plan awards to non-employee directors a portion of their compensation in the form of a fixed number of shares of Entergy Corporation common stock. Equity Compensation Plan Information Entergy has two plans that grant stock options...

  • Page 66
    ... if the employees direct their company-matching contribution to other investment funds. Entergy's subsidiaries contributed $29.6 million in 2002, $25.4 million in 2001, and $16.1 million in 2000 to the Savings Plan. NOTE 6. COMPANY-OBLIGATED REDEEMABLE PREFERRED SECURITIES Entergy Louisiana Capital...

  • Page 67
    ...Entergy Gulf States 8.0% Series Entergy New Orleans 7.5% Series Entergy Arkansas 4.875% Series System Energy 5.2% Series Entergy Gulf States 6.5% Series Entergy Louisiana 6.45% Series Entergy Mississippi 7.0% Series Entergy New Orleans 6.0% Series Entergy Gulf States 6.75% Series Entergy New Orleans...

  • Page 68
    ... Pope County- Arkansas 5.875% Series Mississippi Business Finance Corp. 5.9% Series Mississippi Business Finance Corp. 7.0% Series Warren County- Mississippi 7.0% Series Washington County- Mississippi 7.0% Series St. Charles Parish- Louisiana 7.05% Series St. Charles Parish- Louisiana Auction Rate...

  • Page 69
    ... and customer growth. Non-Utility Nuclear will focus its planned spending on routine construction projects and power uprates. Energy Commodity Services expenditures will primarily be on a merchant power plant project currently under construction and a $73 million cash contribution to Entergy-Koch in...

  • Page 70
    ... of $10 million per licensed reactor per incident per year. Entergy has ten licensed reactors, with five each in the U.S. Utility segment and the Non-Utility Nuclear segment. As a co-licensee of Grand Gulf 1 with System Energy, South Mississippi Electric Power Agency (SMEPA) would share in 10% of...

  • Page 71
    ... Entergy Arkansas', Entergy Gulf States', Entergy Louisiana's, and System Energy's nuclear power plants, excluding SMEPA's share of Grand Gulf 1, are as follows (in millions): Total Approved Estimated Decommissioning Costs ANO 1 & ANO 2 (based on a 1998 cost study reflecting 1997 dollars) River Bend...

  • Page 72
    ... its collection to the FERCapproved level of $341 million in the third quarter of 2001. A 1999 decommissioning cost update of $540.8 million for System Energy's 90% share of Grand Gulf 1 has not yet been filed with FERC. As part of the Pilgrim, Indian Point 1 and 2, and Vermont Yankee purchases, the...

  • Page 73
    ...Louisiana in September 1994. G ENERAL As of December 31, 2002, Entergy had non-cancelable operating leases for equipment, buildings, vehicles, and fuel storage facilities (excluding nuclear fuel leases and the Grand Gulf 1 and Waterford 3 sale and leaseback transactions) with minimum lease payments...

  • Page 74
    ... Retirement Plan III, the pension plans are noncontributory and provide pension benefits that are based on employees' credited service and compensation during the final years before retirement. The Entergy Corporation Retirement Plan III includes a mandatory employee contribution of 3% of earnings...

  • Page 75
    ... Mississippi, Entergy New Orleans, the portion of Entergy Gulf States regulated by the PUCT, and System Energy fund postretirement benefit obligations collected in rates. System Energy is funding on behalf of Entergy Operations postretirement benefits associated with Grand Gulf 1. Entergy Louisiana...

  • Page 76
    ... of Arkansas, Louisiana, Mississippi, and Texas, and provides natural gas utility service in portions of Louisiana. Non-Utility Nuclear owns and operates five nuclear power plants and is primarily focused on selling electric power produced by those plants to wholesale customers. Energy Commodity...

  • Page 77
    ... discounted cash flow projections and current market prices. $39.1 million of the charges relate to the restructuring of Entergy Wholesale Operations, including impairments of administrative fixed assets, estimated sublease losses, and employee-related costs for approximately 135 affected employees...

  • Page 78
    ... 3 and FitzPatrick A SSET A CQUISITIONS Vermont Yankee In July 2002, Entergy's Non-Utility Nuclear business purchased the 510 MW Vermont Yankee nuclear power plant located in Vernon, Vermont, from Vermont Yankee Nuclear Power Corporation for $180 million. Entergy received the plant, nuclear fuel...

  • Page 79
    ... of changes in the market or fair value of a particular instrument or commodity. All financial and commodity-related instruments, including derivatives, are subject to market risk. Entergy is subject to a number of commodity and market risks, including: Type of Risk Power price risk Fuel price risk...

  • Page 80
    ... Value of Trading Contracts at December 31, 2002 2003 2004 20052006 Total (b) Basic and diluted earnings per average common share before the cumulative effect of accounting change for the fourth quarter of 2001 was ($0.01). Prices actively quoted Prices provided by other sources Prices based on...

  • Page 81
    ... for Royal Dutch/Shell with experience in executing acquisitions and ventures in the global energy industry and in dealing with financial markets. Age, 44 Jerry D. Jackson President and Chief Executive Officer and Director of Murphy Oil Corporation, El Dorado, Arkansas. Joined the Entergy Board in...

  • Page 82
    ... and stock purchase plan agent. Shareholders of record with questions about lost certificates, lost or missing dividend checks, or notifications of change of address should contact: Mellon Investor Services 85 Challenger Road Ridgefield Park, NJ 07660 Telephone: 1-800-333-4368 For Internet access...

  • Page 83

  • Page 84
    E N T E R G Y POST NEW C O R P O R A T I O N BOX LA 61000 70161 OFFICE ORLEANS, W W W. E N T E R G Y. C O M